Turns out that you can get government to give a lot more to charity if you invest in individual risky stocks.
If you donate stocks to charity, you don't have to pay any capital gains tax.
So you can do better if you diversify by buying individual stocks rather than buying an index fund.
If you buy an index fund, then your tax savings is only going to equal the average gain of the fund.
But if you buy individual risky stocks, then after 10 years some will have big gains and some will have big losses... Giving some amount of the big winners will maximize your tax savings...
I agree
No opinion
I disagree
Add your comment
The problem with this plan is that it involves taking on a tremendous amount of non-market risk since 10 individual risky stocks are probably too small and unrepresentative of the overall market to be truly diversified. Further, there is 10 times the transaction costs as it invovlves buying and possibly selling 10 securities rather than one.
After 10 years, who knows what our tax code and the incentives contained therein, will look like?
If you invest in stocks, this can be a very powerful way to maximize your giving.
The transaction cost should be minimal in comparison to the deduction gained since transaction costs are far lower than the additional 15% of capital gains tax avoided. You transfer the stock, rather than selling it and giving the money. This means there are no capital gains to report, and you are not taxed on any appreciation in value. (Long-term capital gains tax is 15%). On top of that, you can still deduct the value of the stock as a charitable donation. Depending on your tax bracket, that could mean an additional deduction of 10%-30%+ of the value of the stock.
I'm not a tax professional, but wouldn't be surprised if it worked the same way when taking losses on the transfer of the stock. Could I deduct the value of my stock and also take the charitable deduction on the stock's present value?